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Why Russian Tech Startups Like ZeeRabbit Are Emigrating To The West

After months of crisis in Ukraine, hardly a day goes by when events in and around Putin’s Russia make headlines around the world. Sanctions are a major topic, but there’s relatively little coverage of the impact on entrepreneurial businesses.

To get a first-hand perspective, I recently spoke with two experts on the technology scene in Moscow: Yoanna Gouchtchina, is the Founder & CEO of ZeeRabbit, a digital channel that allows Brands to promote and sell their merchandise directly to an engaged audience. The company’s Managing Partner, Alex Geller, is also a member of the Board of Directors of the American Chamber of Commerce in Russia.

Doing business in Russia had never been easy, but lately, it has appeared as a mission impossible to Gouchtchina and Geller, and they decided to repatriate Zeerabbit in Germany.

Marc E. Babej: Until recently, there was a lot of talk about the Russian technology sector. Is the party over?

Alex Geller: Many people see Russia as a one-dimensional economy based on export of national resources – but few knew that the Russian tech industry was rapidly growing and was becoming a growing source of income. In 2012, the total value of the Russian venture market was 1.98 billion; in 2013 it was $2.9 billion. In 21012, there were exit deals valued at $372 million; in 2013, total deal value rose to almost $2 billion. But in Q1 of this year came a sharp reversal: there were only 79 deals in the value of $109 million; exits only $49 million.

ZeeRabbit CEO Yoanna Gouchtchina

Babej: How do you account for this decline?

Geller: There were a number of factors. The Russian economy started stagnating, at close to 0.5% growth. During the first half of 2014 , over $75 billion, close to 4% of Russian GDP left the country. The ruble exchange rate dropped, which made investors very nervous. For them it was the first sign of instability. As in any business, startups in Russia need stability and predictability of the political and economic environment.

Babej: How much of this decline was due to the crisis in Ukraine, and the ensuing sanctions?

Geller: It’s hard to isolate the impact of the sanctions, but without a doubt, they have brought an additional level of instability. They aren’t biting too much into the Russian economy as of yet. But they certainly will if they last for year or two. They will affect financial markets first and foremost. They will also affect venture capital markets.

Babej: How does this affect your company, Zeerabbit?

Yoanna Gouchtchina: Like any startup, Zeerabbit is in need of capital. For Russian tech companies, there’s not a mature business ecosystem. We were struggling with the political situation before, but the situation with Ukraine, and the even less favorable investment climate, has aggravated these factors.

Babej: You say “even less favorable.” What did you find unfavorable about being in Russia even before the crisis?

Gouchtchina: Being a company from Russia means that you have to have another legal entity in another jurisdiction that investors and partners feel comfortable with.

It also means that you have to have servers in another jurisdiction because there isn’t a solid enough tech infrastructure and laws supporting data protection. It also means that you have to structure your IP in another jurisdiction, because the Russian trademark and patent law is really relevant only in Russia.

So taking all this into account, if you are a company in the global market, as Zeerabbit is, it only makes sense to structure a legal entity somewhere else to sidestep these issues.

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